S&N subsidiary investigated for Iraq 'kickbacks'

Smith & Nephew, the medical equipment firm, has emerged as the third FTSE 100 group under investigation by the Serious Fraud Office over claims that British companies were involved in corrupt contracts in Iraq during the final years of Saddam Hussein's regime.

The investigation was sparked by a 2005 UN-commissioned report by Paul Volcker, a former chairman of the US Federal Reserve, which found evidence of widespread corruption surrounding the so-called "oil-for-food" trading programme, including kickback payments.

"Smith & Nephew has been asked to submit documents to the SFO. We will cooperate fully with its inquiry," an S&N spokesman said, adding: "We are not aware of having done anything wrong."

The Volcker report identified S&N FZE - the London-listed group's subsidiary in the United Arab Emirates, a supplier of bandages, casting, orthopaedics and surgical implants - as making illicit payments of $54,100 (£27,400) on a medical equipment contract worth $600,000. The payments were allegedly disguised as after-sales service fees.

Together with drug groups GlaxoSmithKline, AstraZeneca and Lilly Industries, a British subsidiary of US firm Eli Lilly, S&N has received legal orders, known as section 2 notices, demanding that documents, emails and faxes be handed over to investigators.

The oil-for-food scheme was designed as a humanitarian measure to exempt essential goods from trade sanctions imposed on Iraq between the two Gulf wars. It was policed by the UN but was dogged by accusations of corruption which ultimately led to then-UN secretary general, Kofi Annan, calling in Volcker.